The housing market is sending a troubling signal about what’s coming next
One key measure of housing activity fell to the lowest level in more than two decades in September, as higher mortgage rates are keeping buyers at bay. Pending home sales, which measure the number of signed contracts on existing homes, slumped 7.3% in September from August and were down 11.3% from the prior year, according to data released Tuesday by the National Association of Realtors . The…
The housing market is displaying a concerning sign about future trends, as recent data reveals a significant drop in housing activity. Pending home sales, which track the number of signed contracts on existing properties, experienced a sharp decline of 7.3% in September compared to August and an even steeper decrease of 11.3% from the previous year.
This downward trend is particularly pronounced in traditionally hot markets in the South and West, with average 30-year fixed-rate mortgages surging from around 6.9% to as high as 7.6% in September alone. Lawrence Yun, the chief economist at the National Association of Realtors, attributes this surge in mortgage rates as a major factor in the cooling housing market.
Despite job growth and income gains potentially supporting home purchases, Yun emphasizes that housing affordability is primarily influenced by fluctuations in mortgage rates.
Despite the possibility that mortgage rates may have peaked due to surpassing the Federal Reserve's short-term interest rate hikes, home buyers continue to face additional challenges. Rising energy prices and inflationary pressures add uncertainty to the already weakening housing market. The pending home sales report marks the lowest nationwide reading for this series since its inception in 2001, with declines being even more severe in the West and South compared to other regions.
Even the strongest markets, such as Nashville and San Francisco, have experienced declines in signed contract activity.
Another report highlights a slowdown in home construction activity, with housing starts falling by 5.2% in September from August and a 7.4% year-over-year decrease. This drop in building activity aligns with buyers' concerns about affordability. Additionally, sentiment among homebuilders has worsened, with a monthly gauge of sentiment hitting the lowest level in 14 years, according to the National Association of Home Builders.
Similar to buyers, builders are grappling with rising mortgage rates, higher gas prices, and broader inflation. Homebuilders are also facing construction loan and material cost increases, as well as potential delays due to immigration enforcement activity in their markets. As a result, builders are becoming more cautious, with Robert Dietz, the chief economist at the National Association of Home Builders, acknowledging that while demand persists, higher mortgage rates, elevated construction costs, and weaker consumer confidence are deterring many potential buyers.
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